The federal government is about to dump another $150 billion into AIG to try and save it. This isn’t rearranging the deck chairs on the Titanic – this is handing out solid gold lifejackets. Think about it.
AIG has been a troubled company for years. Corruption and scandal do not appear to be strange to it. This is from the International Herald Tribune dated Jan 7, 2008:
The billionaire investor Warren Buffett has long been revered in the business world, but his importance at a trial involving the world's largest insurer is hotly contested.
The trial started Monday in federal court in Hartford for four former executives of the Berkshire Hathaway General Re unit and a former executive of American International Group who are charged with participating in a plan to manipulate AIG's financial statements.
Some of the executives say they believe Buffett was involved and supported the deal that led to the charges. Buffett leads Berkshire Hathaway, drawing at least 25,000 people to his annual shareholder meetings.
Buffett, a big Obama supporter oddly enough, is generally viewed positively. He is a favorite of Charlie Rose. He’s got the ‘I’m-from-Omaha’ thing going for him. He has made his money purely by investing. Berkshire Hathaway, like AIG and many other American corporations produce nothing directly. That doesn’t mean they are unproductive because they do provide capital and other services that allow production to take place. The trouble such companies usually get into involves manipulating their stock prices through accounting tricks. The article continued:
Buffett, who has not been charged with any wrongdoing, has said he was not briefed on how the transactions were to be structured or on any improper use or purpose of the transactions. His attorney, Ronald Olson, said in a recent statement that Buffett "denies that he passed judgment in any way" on the challenged deals.
At issue are two reinsurance transactions between AIG and General Re of Stamford. Reinsurance policies are backups purchased by insurance companies to completely or partly insure the risk they have assumed for their customers.
Prosecutors said the transactions were initiated by an AIG senior executive to quell criticism by analysts of a reduction in AIG's loss reserves in the third quarter of 2000. The indictment alleges that the aim was to make it appear as if AIG increased its loss reserves by about $500 million in 2000 and 2001, pacifying the analysts and investors and artificially lifting the company's stock price.
The former General Re executives charged include Ronald Ferguson, a former chief executive. Ferguson and the other defendants have pleaded not guilty.
The trial could shed light on what AIG's former chairman and chief executive, Maurice "Hank" Greenberg, knew about the transactions. Allegations of accounting irregularities, including the General Re transactions, led to Greenberg's resignation in 2005.
This is not, unfortunately, at all uncommon. It very often works and stockholders make a lot of money. As an investor myself I have benefited from it, I’m sure. Accounting is not all that different than witchcraft, except accounting actually works. Both involve selling one’s soul to the devil.
Another problem I have with corporations is that CEO’s and directors are kind of like managers in baseball or head coaches in football. No matter how badly they screw up they can probably hang around and get picked up by some other team. A winning college coach may have a graduation rate of 0%, but if he has more wins than losses in his tally, he will keep moving ahead to bigger schools. Missouri didn’t have a problem with Quinn Snyder’s recruiting tactics or his players’ behavior until they missed the NCAA tournament. The same is true in corporations. A CEO is only frowned upon if he doesn’t make money for the stockholders. He will only be hauled into court when the stock prices fall and the investors lose money.
Even then, they sometimes manage to hang around, as in the case of the aforementioned Hank Greenberg.
Back in April of 2005, CNN Money reported that Greenberg had given his wife a gift of AIG shares then valued at $41 million three days before he “retired” because of accounting irregularities. Those irregularities between the Berkshire Hathaway reinsurance unit and AIG falsely inflated AIG’s loss reserves and boosted the stock price.
Let’s move up to October 1, 2008 where we find directorship.com reporting that Greenberg is seeking to buy some of AIG’s assets.
Maurice “Hank” Greenberg, former CEO and AIG critic, has asked the company’s CEO for the opportunity to bid on any assets the insurer plans to sell, according to The Wall Street Journal.
Greenberg made the request to Edward Libby, who took over AIG two weeks ago when the government agreed to let AIG borrow up to $85 billion in order to help it avoid a possibly bankruptcy filing. As a result, the United States government will control 80 percent of the company.
In his letter, dated September 29, Greenberg wrote, “now understand that the company has begun to liquidate itself by selling assets in privately negotiated transactions without transparency and without providing the opportunity for the participation of alternative purchasers."
Greenberg added that he wanted to formally request to have the opportunity to submit an offer on any assets that the company intends to sell. Greenberg left AIG amid an accounting scandal in 2005 and is currently fighting civil charges related to his time at AIG.
A spokesperson for AIG said that the company is open to all reasonable expression of interest in the assets AIG plans to sell, according to WSJ.
I have no idea from the story what "assets" Greenberg would be buying. My guess is that it would be one or more specific insurance portfolios. I would assume that Greenberg has some kind of company set up to service these portfolios. Since he was an insider, he is likely cherry-picking in order to leave AIG and, thus, the government -- ultimately the taxpayers -- with the weaker assets.
By the way, if you go follow the directorship.com link, you will see an ad for a “Boardroom and Economic Forum” featuring Michael Oxley and Barney Frank. It’s the “annual global gathering of leading board directors and corporate governance influentials”. I’m sure Congressman Frank will reassure the corporations that he will help them out, just like he has AIG, Fannie Mae, Freddie Mac, et al.
Corporations and the federal government have far too much of an incestuous relationship as it is. Does it seem ironic to you that the FTC spends months if not years debating something like the merger of XM and Sirius, but it isn’t even in the loop when Uncle Sam, Inc. starts buying up banking and insurance stock to become the major investor in these companies? If the feds “take over” GM, who is going to be responsible for oversight? Is the buyer going to drive products and services, or will we get what our new Congressional Overlords think best for us to have? Uncle Sam Motors does not have to turn a profit, please the customer, or please its "investors". If it gets in trouble producing crappy vehicles, it just prints more money.
The bailout is a bad idea and getting worse everyday. I would rather have a severe recession than the lifetime of government control that currently threatens us.
Maybe it's time we got rid of the Separation of Church and State and went with Separation of Wall Street and Pennsylvania Avenue.
5 comments:
>>Corporations and the federal government have far too much of an incestuous relationship as it is.<<
Record Numbers Seeking Bush Pardon
Good to see Malkin issuing a rallying cry.
Kind of off-topic on your article link, but it talks about blanket presumptive pardons being issued. It wasn't 'blanket' but Ford's pardon of Nixon was presumptive. Nixon, unlike Clinton, was never impeached, because he resigned, and never indicted, as best I can recall, prior to his pardon.
I dislike the whole idea of pardons as circumventing the system, or as a quid pro quo. Presidential pardons should be limited to people who have become examples of what it means to repent and turns one's life around.
Which reminds me of Carla Faye Tucker. Do you remember? Is that the right name? She was somewhat of a babe who had killed a couple with a pick or something when she was high.
She had become a Christian in prison. Mike Barber and lots of evangelicals -- not the regular anti-death penalty crowd -- were pushing for commuting her sentence. GWB was the governor then, and he just refused.
Karla Faye Tucker. A lot of good, high profile folks thought she deserved a pardon; GWB's heart was just not open. His list of pardons will be of interest to the qp.
Dear Uncle Sam,
After I bailout GM, please send me my shares right away. I’m not doing this for nothing.
Thank you.
Love Rick
There you go, Rick. You, QP, and I can take over GM. I'm pretty sure we can do a better job [bust the unions ... bust the unions ... bust the unions] by bringing in new insight, understanding and empathy for the workers.
Karla Faye, I remember now. She did seem like a genuinely changed person. And she wasn't asking for a pardon or to be released, just a commutation to life so she could stay in prison and minister to other women.
I think he should have done it.
Of course that was not too long after the despicable Kenneth McDuff had been released to go on his last killing spree. Most Texans were in no mood to see someone like that game the system and possibly get out to kill again. The sentiment at the time may have worked against Karla Faye.
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